Count On This

L eave it to a couple of finance professors to test Al Gore's assumptions about fair recounts and election victories. And leave it to the Florida Supreme Court to set up a real-world test of the academics' theories. Joshua Coval and Tyler Shumway, assistant finance professors at the University of Michigan, early last week looked at the official numbers posted on the Florida secretary of state's Website, and reached a conclusion not far from that of Circuit Judge N. Sanders Sauls, who rejected Gore's call to overturn George W. Bush's certified victory in Florida (and thus in the nationwide presidential race) and a manual recount in only selected counties. The profs found that, if all of the ballots rejected by all of the counties were distributed in proportion to the election totals in each of them, "the probability that Gore will ultimately win a complete recount of Forida appears to be close to one." Oddly enough, the Florida Supreme Court late Friday overturned Sauls' decision, and ordered a recount of all "undervotes" in all 67 Florida counties.

Coval, who does research with Shumway, says the pair "thought most of Gore's claims weren't supported in the data." They noted that Gore's claim of bias might have merit "if the counties he is vigorously contesting have an unusually large number of miscounted votes." But those counties "do not appear to be anomalous in any particular way," they say. Though the rejection rate in Broward County, where Gore added 582 votes in a hand recount, was under 2.5%, Duval County, which overwhelmingly supported Bush, rejected over 27,000 ballots, more than 9% of its total vote.

The professors' conclusion? Assuming 15% of the rejected ballots of each county are resolved by a hand recount (about the number of rejected ballots resolved in Broward County), Bush's expected lead over Gore grows to 1,977 votes from the originally certified 537. (That lead was cut to 154 by the Supreme Court ruling, which added some votes Gore already had gained in partial recounts). The professors' theory is about to be put to the test. Now they must know how their students feel sweating out the results of a final exam.

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Dow World Index

216.28

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30-Year Treasury Bonds

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-0.129

Soft Signs

The jobless rate rose in November for the first time in four months, to 4%, and nonfarm payrolls grew just 94,000, far less than the 150,000 forecast by Wall Street but faster than the 77,000 added in October. The employment report, coupled with a preliminary reading by the University of Michigan that its consumer sentiment index plunged to its lowest level since October 1998, pointed to a softening of the U.S. economy.

Bells and Whistles

The Nasdaq Composite Index clocked its second-best week in history, in percentage terms, soaring 10.8%, or 272 points, to finish at 2916.16. The Dow rose 339 points, or 3.2%, to end the week at 10,712.91. The indexes were helped by the tame inflation news, and remarks by Federal Reserve Chairman Alan Greenspan indicating the Fed would abandon its bias toward higher interest rates.

The Endless Election?

The U.S. presidential election remained unresolved, but slouched toward resolution. The Florida Supreme Court voted 4-3 to order manual recounts in all counties where votes were undercounted, a victory for Vice President Al Gore, and rejected a lower-court ruling that favored Texas Gov. George W. Bush. Two Florida judges rejected Democrats' bids to throw out thousands of absentee ballots, and the Florida legislature moved toward naming a Republican slate of electors by Tuesday's deadline.

What a Gas

Natural-gas prices soared to an all-time high, jumping 15% one day last week, on cold weather fears. An energy market consultant, PIRA Energy Group, said the U.S. has a one-in-five chance of running out of natural gas this winter. Meanwhile, oil prices retreated to under $28 a barrel, as traders concluded supply concerns weren't strong enough to justify oil's decade-high levels.

Storm Warnings

Intel
lowered fourth-quarter sales estimates;
Motorola
revised fourth-quarter sales and earnings forecasts down for the second time this year, and
Apple Computer
said it would report its first quarterly operating loss in three years.
3Com
expects a worse-than-anticipated second-quarter loss, and
Bank of America
sharply lowered fourth-quarter estimates because it has $1 billion of bad debt.

Building Goodwill

The Financial Accounting Standards Board, reversing an earlier plan, proposed letting companies avoid big periodic writedowns when they make acquisitions using purchase accounting. The board will still eliminate pooling-of-interest accounting, but will require companies only to write down goodwill, or premiums paid above acquired companies' tangible net asset values, if the value of the goodwill becomes impaired.

Trading Places

The executives who lost out in
General Electric
's succession race were scooped up by other companies. Robert L. Nardelli, president of GE Power Systems, was named president and CEO of
Home Depot
, while W. James McNerney Jr., head of GE Aircraft Engines, will become chairman and CEO of
3M
(see Follow-Up column). The Nasdaq Stock Market named Hardwick Simmons, a former Prudential Securities executive, to succeed Frank Zarb as CEO, February 1. Traders at the Chicago Board of Trade ousted incumbent Chairman David Brennan by a hair, and elected independent trader Nickolas Neubauer.

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